AEP warns of job cuts if PUCO slow to OK charge

Wednesday

Feb 29, 2012 at 12:01 AMFeb 29, 2012 at 6:15 PM

American Electric Power's top executive says the company will have to make drastic cuts in jobs and investment if Ohio utility regulators do not move quickly to allow an increase in a key charge paid by competing electricity suppliers. Nick Akins, president and CEO of the Columbus-based utility, said he faces difficult choices because of the Public Utilities Commission of Ohio's decision last week to throw out the company's rate plan that went into effect last month. He said all options are on the table, and he wouldn't rule out moving the corporate headquarters.

Dan Gearino, The Columbus Dispatch

American Electric Power's top executive says the company will have to make drastic cuts in jobs and investment if Ohio utility regulators do not move quickly to allow an increase in a key charge paid by competing electricity suppliers.

Nick Akins, president and CEO of the Columbus-based utility, said he faces difficult choices because of the Public Utilities Commission of Ohio's decision last week to throw out the company's rate plan that went into effect last month.

He said all options are on the table, and he wouldn't rule out moving the corporate headquarters.

"We feel like we're being drawn and quartered," Akins said in a meeting with Dispatch reporters and editors. "Everyone's coming, and we're defenseless."

The company lost about $1 billion in market value in a 24-hour period last week after the PUCO decision.

The commission is requiring AEP to use a modified version of its December 2011 rates that probably will take effect in the next few days.

While the old rates are in effect, regulators will start from the beginning with a new rate case. AEP has up to 30 days to submit a proposal, and the process will take months.

Under the rates that were revoked, AEP had the right to increase the amount it charges competitors to use its system. The capacity charge was to be $110 per megawatt-day for competitors that were already serving customers in AEP territory, and $255 per megawatt-day for just about any new customers who signed up with competitors.

This charge is paid by the electricity provider and passed on to the customer. At $255, it is equivalent to 1.6 cents per kilowatt-hour, which would be an increase of more than 5 percent in the overall rate for a typical household.

AEP has asked the PUCO to impose the $255 charge in the interim until the panel approves new rates. The company says the PUCO's decision on its request - which could come as soon as next week - could help stave off the crisis of confidence created by the commission's prior actions.

Without this, AEP worries that competitors will undercut its price and contribute to a potentially devastating loss of sales and a drop in its share price.

But competitors such as Akron-based FirstEnergy say that AEP wants to shut out competition and hold its customers captive to high rates.

This argument, with technical details that go beyond the understanding of most consumers, was one of the most bitterly contested points in the rate case.

For years, AEP's low rates shielded it from incursions from competitors. That changed beginning in 2008 when the PUCO approved a big rate increase for AEP just as the wholesale price of electricity was about to decline.

Utilities want "the certainty of regulation, but when times are good in the market, they want the higher price of the market," said Ken Rose, a Columbus economist who specializes in utility-rate design.

He said that AEP executives "weren't complaining" when they were benefiting from the market.

Hugh Wynne, an analyst for Sanford C. Bernstein and Co., said in a research note that he expects the PUCO to eventually approve a rate plan that is "structurally similar" to the one that was revoked. The changes probably will include a reduced burden on small businesses, he said.

The uncertainty for AEP is tied to how long a decision will take and what happens until then. "This is a 'now' kind of issue, not 30 days," said Joe Hamrock, president and chief operating officer of AEP Ohio.

The PUCO has said it would like to move quickly to approve the new rates, but it has not specified how long that might take. A spokesman said the agency is reviewing AEP's request about the interim capacity charge and also is giving other interested parties time to comment. The soonest possible action would be next week, he said.

AEP has about 7,000 employees in Ohio; that's more than it has in any of the other 10 states in which it operates.

"We have no choice" but to review all spending in the state, Akins said.

dgearino@dispatch.com

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